frb_061921

FEDERAL RESERVEBULLETIN

(FINAL EDITION)

ISSUEQ^Y THEFEDERAL RESERVE BOARD

AT WASHINGTON

JUNE, 1921

WASHINGTONGOVERNMENT PRINTING OFFICE

1921

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FEDERAL RESERVE BOARD.

EX OFFICIO MEMBERS.

A. W. MELLON,Secretary of the Treasury, Chairman.

D. R. CRISSINGER,Comptroller of the Currency.

W. P. G. HARDING, Governor.

EDMUND PLATT, Vice Governor*

ADOLPH C. MILLER.

CHARLES S. HAMLIN.

JOHN R. MITCHELL.

W. W. HOXTON, Secretary.W. L. EDDY, Assistant Secretary.W. M. IMLAY, Fiscal Agent.

. HERSON,Chief, Division of Examination and Chief Federal

Reserve Examiner.J. E. CRANE,

Acting Director, Division of Foreign Exchange.

WALTER S. LOGAN, General Counsel,R. G. EMERSON, Assistant to Governor.H. PARKER WILLIS,

Director, Division of Analysis and Research.M. JACOBSON, Statistician.E. A. GOLDENWEISER, Associate Statistician.E. L. SMEAD,

Chief, Division of Reports and Statistics.I I


OFFICERS OF FEDERAL RESERVE BANKS.

Federal Reserve Bank of

Boston

New York

PhiladelphiaClevelandRichmond

AtlantaChicago

St. LouisMinneapolisKansas CityDallas .San Francisco

Chairman.

Frederic H. CurtissPierre Jay

R. L. AustinD.C.WillsCaldwell Hardy

Joseph A. McCord.Wm. A. Heath

Wm. McC. MartinJohnH. RichAsa E. RamsayWm. F. Ramsey . . . .John Perrin

Governor.

Chas. A. Morss

George W. Norris.E. R. Fancher .George J. Seay

M. B. Wellborn .J. B. McDougal

D.C. BiggsR. A. YoungJ. Z. Miller, jrR. L. Van Zandt ...J. IJ. Calkins

Deputy governor.

C. C. BullenW. W. PaddockJ. H. CaseL. F. SailerG. L. HarrisonE. R. KenzelWm. H. Hutt,jrM. J. FlemingFrank J. ZurlindenC. A. PepleA. S. Johnstone 3John S. Walden *L. C. AdelsonJ. L. CampbellC.R. McKayS. B.Cramer

0. M. AtteberyW.B. GeeryS. S. CookC. A. WorthingtonLynn P. Talley...Wm. A. DayIra Clerk 3L. C. Pontious8

Cashier.

W. Willett.L. H. Hendricks *J. D. HigginsxA. W. Gilbart.1Leslie R. Rounds.1J. W. Jones.*W. A. Dyer.H. G. Davis.Geo. H. Keesee.

M. W. Bell.W. C. Bachman.iF. J.Carr.iK. C. Childs.iJ. H. Dillard.iD. A. Jones.i0. J. Netterstrom.1A. H. Vogt.Clark Washburne.1J. W. White.Frank C. Dunlop.*B. V. Moore.J. W. Helm.Sam R. Lawder.W. N. Ambrose.

i Controller. 2 Assistant to governor. a Assistant deputy governor.

MANAGERS OF BRANCHES OF FEDERAL RESERVE BANES.


New York:Buffalo branch

Cleveland:Cincinnati branchPittsburgh branch

Richmond:Baltimore branch

Atlanta:New Orleans branchJacksonville branchBirmingham branchNashville branch

Chicago:Detroit branch

St. Louis:Louisville branchMemphis branchLittle Rock branch

Manager.

Ray M. Gidney.L. W. Maiming.Geo. De Camp.Morton M. Prentis.Marcus Walker.Geo. R. De Saussure.A. E. Walker.J. B. McNamara.R. B. Locke.W. P. Kincheloe.J. J. Heflin.A. F. Bailey.


Minneapolis:Helena branch

Kansas City:Omaha branchDenver branchOklahoma City branch

Dallas:El Paso branchHouston branch

San Francisco:Los Angeles branchPortland branchSalt Lake City branchSeattle branchSpokane branch

Manager.

0. A. Carlson.L. H. Earhart.C. A. Burkhardt.C. E. Daniel.W. C. Weiss.E. F. Gossett.C. J. Shepherd.Frederick Greenwood.R. B. Motherwell.C. R. Shaw.W. L. Partner.

SUBSCRIPTION PRICE OF BULLETIN.

The FEDERAL RESERVE BULLETIN is the Board's medium of communication withmember banks of the Federal Reserve System and is the only official organ or periodicalpublication of the Board. It is printed in two editions, of which the first contains theregular official announcements, the national review of business conditions, and othergeneral matter, and is distributed without charge to the member banks of the FederalReserve System. Additional copies may be had at a subscription price of $1.50 perannum.

The second edition contains detailed analyses of business conditions, special articles,review of foreign banking, and complete statistics showing the condition of FederalReserve Banks. For this second edition the Board has fixed a subscription price of$4 per annum to cover the cost of paper and printing. Single copies will be sold at40 cents. Foreign postage should be added when it will be required. Remittancesshould be made to the Federal Reserve Board.

No complete sets of the BULLETIN for 1915, 1916, 1917, or 1918 are available.i l l


TABLE OF CONTENTS.

General summary: m Page.

Review of the month 645Business, industry, and finance, May, 1921 , 656Condition of the acceptance market 667

Summary of Governor Harding's speech 671German reparations 674The gold situation 676Practice under commercial letters of credit 681Business and financial conditions abroad: England, France, Italy, Germany, Sweden 689Official:

Rulings of the Federal Reserve Board 699Law department 700State banks admitted to system 698Fiduciary powers granted to national banks 688Banks granted authority to accept up to 100 per cent of capital and surplus 670Charters issued to national banks 698

Price movement and volume of trade:Domestic

Wholesale prices in the United States 702Foreign trade 706Physical volume of trade 707Retail trade 720Wholesale trade 722Commercial failures 698

ForeignComparative wholesale prices in principal countries 723Comparative retail prices in principal countries 727Foreign tradeUnited Kingdom, France, Italy, Sweden, and Japan 728

Banking and financial statistics:Domestic

Discount and open-market operations of Federal Reserve Banks 730Condition of Federal Reserve Banks 736Federal Reserve note account 742Condition of member banks in leading cities 743Bank debits 750Operations of the Federal Reserve clearing system 755Gold settlement fund 756Gold and silver imports and exports 759Money outside the Treasury and Federal Reserve System 762Discount and interest rates in various centers 761Discount rates approved by the Federal Reserve Board 762Earnings and dividends of State bank and trust company members 763

ForeignEngland, France, Italy, Germany, Sweden, and Japan 764

Charts:Net earnings of Federal Reserve Banks in 1920, related to daily average paid-in capital, surplus, members'

reserve deposits, and Federal Reserve note circulation 673Earning assets, Federal Reserve note circulation, and cash reserves of Federal Reserve Banks, also imports

and exports of merchandise and wholesale price index 672Central gold reserves of principal countries 677United States gold imports and exports, November, 1918, to May, 1921 680Index number of wholesale prices in the United Statesconstructed by Federal Reserve Board for pur-

poses of international comparisons 703Physical volume of trade 708Movement of principal assets and liabilities of Federal Reserve Banks 737Movement of principal assets and liabilities of member banks 744Debits to individual accounts 751

IV


FEDERAL RESERVE BULLETINVOL. 7 JUNE, 1921. No. 6

REVIEW OP THE MONTH.New factors in the process of economic re-

adjustment have made theirNew factors in

a p p e a r a n c e during the pastreadjustment. r ! - . & l

month. Some have a favora-ble bearing upon the business situation, while inthe case of others results are doubtful and mustbe awaited before positive conclusions arereached. Especially likely to contribute to thefurtherance of progress toward normal businessconditions are the current wage readjustments,both actual and prospective. Notable amongsuch adjustments may be mentioned the 20 percent reduction which has occurred in the wagesof employees of the United States Steel Corpora-tion (following close upon an earlier revisionof the prices charged by that concern), andthe semiofficial announcement that the Rail-way Labor Board is prepared to put into effecta revised scale of transportation wages. Therehas been evident in a variety of industries amarked tendency toward friendly rearrange-ment of wage relationships, sometimes precedingand sometimes following price revisions. Pricesthemselves have tended to settle to a some-what lower basis and the various index num-bers have tended to move rather more closelyin harmony, thus indicating that the readjust-ment period is nearer completion. Unfavor-able factors tending to retard the restoration ofsettled conditions have been seen in the declineof export trade and the apparent loss of groundin some competitive markets, or in marketswhich have been unfavorably affected by ourfailure to furnish adequate financial facilities.The inability to bring about faster movementof agricultural products from farm to market,and especially to foreign markets, has also con-tinued to work against improvement of condi-tions in the farming States, where, however,prospects for the current crop season are gen-

erally favorable. Banking advances inevitablycontinue in those regions to be "frozen."Taking the banking situation as a whole, how-ever, there has been a decided progress towardmore liquid conditions, illustrated by the growthof the ratio of Federal Reserve Banks them-selves to a figure of 57.6 per cent on the finalreport date of the month (May 25).

I t is a notable fact that while foreign pros-pects are unsatisfactory, domestic factors inthe present situation have shown at all eventsa capacity for improvement. This situation isapparently misunderstood by some who aredisposed to believe that economic conditions athome can be restored to a satisfactory basiseven though the foreign situation continues un-settled. The fact in the case is that our for-eign trade is now also a domestic trade factorof primary importance. Due to the great ex-pansion of our manufacturing power during thewar it is essential to control a reasonableamount of foreign trade if we expect to keepour present agricultural lands, or our manufac-turing investment, employed. This is equiva-lent to saying that we can not reasonably ex-pect a complete recovery in domestic tradewithout having a somewhat correspondingadvance in foreign business. While it is truethat our home trade is both larger in volumeand in value than the foreign business in mostcommodities, it is true that a small shortage orsurplus of a given kind of goods produces animportant and far more than proportionaleffect on prices. Foreign trade is thus neededas a stabilizer of values, beside being essentialas a means of insuring full demand for goodsand complete activity of productive energies.

With the importance of our foreign tradeA turning point thus recognized, and with its

in foreign trade, direct bearing upon the do-mestic economic outlook thus fully admitted,

645


646 FEDERAL RESERVE BULLETIN. JUNE, 1921.

current figures showing the actual movementof goods to other countries assume new signifi-cance. April returns show continuation of themovement toward a more even balance be-tween exports and imports. Exports werereported as $340,000,000 for the month andimports as $255,000,000. The excess of ex-ports over imports, that was developing duringlast December and January at the rate of some$450,000,000 monthly, has been cut down eachmonth since then, until for April our balanceon merchandise account was only $85,000,000.Imports of gold, on the other hand, amountedto about $82,000,000 in April. This change inthe balance of trade has been brought about,not so much through increase in the value ofimports, but rather by decline in the value ofexports. In fact, the value of imports, althoughshowing some increase over the very low figuresof January of this year, is still in value onlyhalf the figure for April, 1920. Price declineshave naturally been responsible to a consider-able extent for the reduction in values duringrecent months. For this reason the foreigntrade index of the Federal Reserve Board is par-ticularly significant in interpreting the volumeof trade "as compared with previous months.This shows that while the volume of exportshas been shrinking steadily since the latter partof- 1920, the physical volume of imports hasbeen increasing much more rapidly than thevalue figures indicate, owing to reductions inprices. To the extent that this index is rep-resentative of our foreign trade as a whole, theconclusion is justified that exports in Aprilhad declined to about the same volume as inApril, 1913, while imports were reaching thiscountry in nearly double the quantity of thecorresponding prewar month. So far as indi-vidual commodities are concerned, the in-creased volume of imports is well distributedamong the several classes of goods. Amongexports, corn and wheat continue to move inquantities several times the volume of a yearago, while cotton shows a decided falling off.

A striking feature of the foreign-trade situa-tion has been the inward gold movement. Thenet importations of gold for the first fourmonths of the current year now amount to$241,000,000, while for the fiscal year (10

months) they are $407,000,000. Resumptionof heavy gold shipments to the United Stateshas an important correlation with the coinci-dent decline in our foreign trade in goods. I twas a notable factor in the business depressionof last autumn that our banks practicallyceased financing the foreign trade in a varietyof directions, with the result that these branchesof business or the geographical divisions of thetrade thus dealt with were deprived of creditfacilities, and so were practically obliged to fallback upon cash payments, except in so far asthe only partly developed import trade wasable to afford means of paying for export ship-ments from this country. In the acute stagesof a commercial crisis or depression foreigntrade is likely to decline to a point where it isdefinitely upon a cash basis, and this is prob-ably the situation which has been developingin our own foreign commerce. I t is a state ofthings which obviously can not long continue.

The import movement of gold, as justFinancing ex- noted, is to be attributed in

ports, large measure to the lack ofordinary methods of settling for our exportsthrough extensions of credit if impossible to do sothrough the inward shipment of foreign mer-chandise. It has no permanent significance as afinancial factor. There has been little or no re-duction in the urgent nature of the problem offinancing our foreign trade and particularly theexport movement. Efforts to further the organi-zation of special financing corporations createdfor the purpose of granting long-term ac-commodation have met with limited success,the reason for delay being found largely in theindisposition of banking institutions to sub-scribe for stock in them. That there is a largeand important field of credit effort to be filledby such institutions is beyond question. Theproblem in the case appears to be partly thatof accurately ascertaining the credit of theforeign borrower so as to be sure of the sound-ness of the loan, and partly that of assuring asufficiently broad interest among Americaninvestors. Meantime the experience of thevarious foreign banking corporations, boththose organized under the Edge Act and thosepreviously established under older State laws,is proving of considerable interest in connec-


JUNE, 1921. FEDERAL, RESERVE BULLETIN. 647

tion with the general problem of method inforeign financing. It has been noted withinterest that thus far the greater number of theforeign trade organizations have become prac-tically acceptance enterprises, far the largerproportion of the accommodation extended bythem assuming that form. One reason for thistrend of development has doubtless been thegreater ease experienced in getting funds fromthe acceptance than from the investmentmarket, while another has doubtless beenfound in the comparative simplicity of obtain-ing cooperation and assistance along credit-lines from foreign financial institutions. Accu-rate reports regarding the credit underlyingordinary business on long term are by nomeans easy to get, or, in the present conditionof European business, very reliable, in allcases. Difficulty in getting the cooperation orjoint guaranty of foreign institutions and abelief that if full responsibility must be carriedfor all credits advanced, it should be accom-panied by rapid turnover with correspondingprofit, is assigned by some as the reason for thedevelopment of foreign financing corporationsalong short-term lines.

What has actually been done toward devel-oping a system of foreign-trade financing cor-porations may be seen from the following com-pilation, which affords data regarding the chiefinstitutions of the sort that are now in exist-ence, taken from their most recent statements:

Name of bank.

Capital,surplus,

andundivided

profits.

American Foreign Banking Corporation $6,504,635Asia Banking Corporation 0,109,675French-American Banking Corporation 2,803,807International Banking Corporation 14,015,146Mercantile Bank of Americas 10,802,063Park Union Foreign Banking Corporation 4,621,004Shawmut Corporation 2,265,845Discount Corporation of New York 6,697,132First Federal Foreign Banking Association... 2,311,166Federal International Corporation 7,000,000International Acceptance Bank I 15,250,000

Assets.

$64,325,03341,496,41422,978,190

131,327,34495,967,55022,455,45613,873,54173,804,7249,239,897

The Foreign Financing Corporation, projectedwith a capital of $100,000,000, is still in processof organization.

The facts thus furnished show clearly thecomparatively limited character of the finan-cial facilities which have been provided for the

financing of our foreign trade upon a specialbasis distinct and apart from that which isfound in the foreign departments of our banks.Conditions relative to financing should, more-over, be studied in the light thrown on the sub-ject by the character and seriousness of theforeign trade problem in the large. As thingsstand, complete or full recovery in our domestictrade will not be insured without at least reason-able restoration of our foreign commerce. Thelatter object is, however, in no small measuredependent upon the development of an ade-quate financial basis for the business.

Effort is being made by the War FinanceThe War Fi- Corporation to facilitate the

nance Corpora- movement of goods to foreigntion

- points and, with that object inmind, the corporation has issued Circular No. 1(obtainable from Federal Reserve Banks),containing information for the use of prospec-tive applicants for advances. The circular inquestion sets forth clearly the terms uponwhich such advances will be favorably consid-ered. I t is made plain that the export creditsprovided and authorized under the act will bemade only (1) to American citizens (2) whoevidence their indebtedness by a direct andunconditional obligation signed by a person,partnership, or corporate enterprise subject toAmerican law, and (3) who show (in the caseof individuals) that they have not been able toget support through ordinary banking channelsor (in the case of banks) that the loans are tobe made for exportation and are not over theamount advanced to and unpaid by an ex-porter. In these circumstances the respon-sibility for the credit rests with the exporterwho receives the advances, he being then un-der the necessity of ascertaining the characterof the credit standing of the foreign buyer,and of collecting from him at maturity. Lo-cal bankers have been unwilling to retain theliability for advances in support of export tradeincurred through indorsement. Not a fewadhere to the view that such retained orcontinued liability places the bank in a dan-gerous position, especially when steadily in-creased through repeated rediscounting orborrowing. The rate of interest to the indi-vidual exporter which, as announced in the



circular, is by law required to be at least 1 percent higher than the 90-day rate of the FederalReserve Bank of the district in which theadvance is made, is now, by the action of Fed-eral Reserve Banks in cutting their rates to6-6J per cent, fixed at a level of 7-7^ per cent.During the past month conferences held withcotton interests have resulted in facilitatingshipments financed by the corporation to va-rious foreign markets.

In reviewing the export finance situationAcceptances special attention should be

and ^ letters of given to two new rulings madecredit. public by the Federal ReserveBoard during the past month. Of theseprobably the more important is designed tolengthen the period of maturity of eligiblebankers7 acceptances to six months. From theinauguration of the Federal Reserve Banks theacceptance has been treated as a commercialbill and hence subject to the statutory limita-tion of 90 days applicable to such paper.This, as is well known, did not necessarily barpaper of longer maturity from becoming eligiblefor purchase or discount, but merely preventedReserve Banks from buying or discounting ituntil it was within 90 days of its maturity date.The new regulation doubles this maturityperiod and so opens to technical eligibility foropen market purchase of paper which wouldotherwise have been admissible into FederalReserve Bank portfolios only after thelapse of 90 days. Commercial conditions sincethe close of the war have unavoidably tendedto increase the necessary period of ordinarycredit, so that an acceptance of six months'maturity may not be longer when its generalrelation to the average duration of commercialtransactions is concerned than was a like docu-ment of 90 days' maturity prior to the war.The real test of the new provision will beafforded when it is seen how far, if at all, theaverage life of the acceptances currently heldin Reserve Bank portfolios has been increasedby reason of the action. In the opinion ofsome Reserve Bank officers such increase willcertainly be very limited. Experience over aseries of months can alone demonstrate theeffects of the ruling upon the maturity of Re-serve Bank portfolios,

In outlining the considerations which havegiven rise to this ruling, and in cautioning thebanks with regard to operations under it, theBoard said:

"Two considerations have led the Board totake this action: (1) The desire to widen theacceptance market bv meeting the wants ofsavings banks and similar purchasers of bankers'acceptances who are now deterred from in-vesting in acceptances of longer than threemonths' maturity, because of the lack of au-thority of Federal Reserve Banks to purchaselonger maturities up to six months; (2) to pro-vide more ample facilities for financing importand export trade with countries where eithernormal conditions or present abnormal con-ditions indicate the desirability of renderingassistance by making acceptances of matu-rities not exceeding six months eligible forpurchase by Federal Reserve Banks. Whilethe Federal Reserve Banks would, under ordi-nary conditions, prefer to confine their invest-ments to paper of short maturity, that is, notexceeding three months, it is believed that thepresent emergency in the foreign trade situa-tion would be relieved by a more liberal prac-tice. Vigilant care, however, should be exer-cised by Federal Reserve Banks in purchasingacceptances of long maturities, in order thatthe liquidity of the aggregate investment inacceptances held by them should not be affected.In amending its regulation in the manner de-scribed, the Board looks to the good bankingjudgment and discretion of the accepting banksand of the Federal Reserve Banks to avoid anyuntoward results. To avoid misunderstandingthe Board desires to add that the results of thiswidening of the investment powers of the Fed-eral Reserve Banks will be followed closely,with a view to such modification of its rules oramendment of its regulations as future devel-opments may indicate to be necessary."

The problem of facilitating foreign trade onthe long-term basis is essentially one for theinvestment market, but the Board's action, asjust seen, in lengthening the acceptance periodto six months, is due to a desire to do whatcan be done in an emergency calling forprompt relief.

The second ruling of the Board relates to thepractice heretofore widely employed by mem-ber banks in obtaining the services of anotherinstitution as an opener of letters of credit intheir behalf. The Board now, acting in accordwith the Comptroller of the Currency, findsthat this practice has no legal warrant and?



New hazards

while recognizing that it is not, on the otherhand, positively illegal, nevertheless cautionsnational banks not to resort to it further. Asa substitute for the older relationship there issuggested an agency contract under which thebank issuing in its own name a letter of creditwould be definitely recognized as acting foranother which had requested such service. Inany case, however, the acceptances issued orcreated by such an agent bank must be re-ported and shown on its statement as con-stituting part of its authorized or legal line ofliabilities, while the principal bank must dolikewise.

It must be frankly admitted that the prob-lems of our foreign trade areno^ exclusively financial butthat they involve others of a

broader nature. Were it true that the Euro-pean economic situation had been reduced toa basis of ordinary credit analysis, very muchmore progress could undoubtedly have beenmade within the past two years in securing arestoration of industrial activity, while Euro-pean obligations, both private and public,would have found a broader market here thanhas been the case. It has been the feeling ofnot a few American business and financial inter-ests that while they might fairly be expectedto carry all ordinary risk growing out of invest-ments that they might be asked to make inEuropean industry or out of the purely financialproblems and difficulties of European Govern-ments (in those cases where offerings of securi-ties consisted of public bonds), it was too muchto ask that private citizens or banking estab-lishments should incur hazards due to politicaluncertainty or instability. I t is in this con-nection, no doubt, more than in any other thatthe German reparations discussion has been ofimportance. So long as the reparations con-troversy rested upon a political rather than aneconomic basis and involved the direct use ofmilitary authority as well as the control ofimport and export trade by foreign nations,the factors involved in any form of Germanfinancing presented unusual difficulty and un-certainty. The same has been true, even inmuch higher degree, of many of the obligationswhich have been offered from time to time to

American business men by interests and evenby Governments which were likely to beendangered by political changes. Exportershave reported that they could do a largetrade in various of the European countriesif they were willing to accept high interest-bearing Government bonds which were offeredto them at a very substantial discount, butthat they were unable to consider the businessthus suggested to them because of the diffi-culty of disposing of the securities underexisting conditions. The political risks in-volved in financing industrial transactions insome of the foreign countries have undoubt-edly tended very greatly to hinder exportfinancing in this country and have given risein various quarters to the suggestion that ifthe Government were willing to guaranteefinanciers or exporters against hazards growingout of political change, it would be much lessdifficult to secure the funds necessary tofurnish the required basis for business whenonly commercial and industrial hazard had tobe considered. The settlement of the Germanreparations discussion, to which reference willpresently be made, should constitute a longstep in the direction of eliminating this kind ofobstacle from the path of legitimate exporttrade, and must therefore be regarded as offirst rate importance to business in the UnitedStates.

The same problems which confront Americanexporters in connection with political traderisks have likewise been recognized by Britishtrade authorities, as may be seen from theplan put into effect at the end of last yearwhereby in the case of exports to certaincountries such as Finland, Latvia, Esthonia,etc., the Government advances up to 100 percent of the value of the goods and guarantees80 per cent. Early in March last the presidentof the Board of Trade proposed a somewhatdifferent scheme, namely, to guarantee up to85 per cent of the selling price of the goods,and to require from the importer securitiesto the value of only 50 per cent instead of theprevious 100 per cent. This new proposalhas apparently not been put into effect and thetransactions under the older scheme are of avery minor character. Between January I



and March 31, 1921, advances had been madeby the Board of Trade for only 321,000.

Outside the field of domestic financial prob-lems and the technique of their

The reparations g o l u t i t h e r e h a v e b e e n ob_

settlement. ; .served during the past month

some occurrences of large importance in theirbearing upon international trade and the gen-eral prospects of its development. Chiefamong these is undoubtedly the Germanreparations plan, as made known on May 5in official form, and as interpreted by Mr.Lloyd-George in his address in the House ofCommons on the same date. The final agree-ment upon terms in the reparations contro-versy must without doubt be regarded asthe triumph of economic over political con-siderations. It thus marks the return of agreater degree of sanity in European affairsand opens a more promising outlook accord-ingly for future economic readjustment there.This in itself would mean the attainment of abasis of understanding of first class economicsignificance as a general factor in reconstruc-tion. It has, however, a special bearing uponthe position of the United States. This isfound in the fact that the adjustment unques-tionably eliminates the most serious elementof uncertainty that has affected internationaltrade since the war. So long as there washesitation regarding the final adjustment,trade between Germany and all other nations,including the United States, was necessarilymore or less interrupted. Not only was thistrue, but the considerable investment ofAmerican capital in German enterprises whichhad begun about a year ago could not safelybe continued and was necessarily suspended.Sale of German Government obligations in thiscountry, whether with or without Alliedindorsement, was equally unlikely to be suc-cessfulindeed, ever since the appearance ofserious friction regarding the settlement therehas been a practical cessation of Europeanofferings of most kinds. This situation fortu-nately has already become much lessacute and conditions are approaching a rathermore normal position. That our market willbe called upon to carry a substantial share ofthe necessary financing growing out of theGerman adjustment will naturally be unavoid-

Terms of thesettlement.

able. The Cabinet, after considering at itsmeeting of May 20 the question of foreign loans,announced however that the proceeds of suchas are made should be used for the purchase ofgoods for export, or in other words, that suchadvances as we make ought to be taken ingoods.

In its actual terms the German settlement,though nominally simple, offersnumerous complexities. Theofficial text of the protocol made

public by the French Government fixes the totalpayable under articles 231, 232, and 233 of theTreaty of Versailles at " 132,000,000,000 goldmarks, less (a) the amount already paid onaccount of reparation; (6) sums which mayfrom time to time be credited to Germany inrespect of state properties in ceded territory,etc., and (c) any sums received from otherenemy or ex-enemy powers in respect of whichthe commission may decide that credit shouldbe given to Germany, plus the amount of theBelgian debt to the Allies, the amounts ofthese deductions and additions to be deter-mined later by the commission." This totalsum is to be represented by (a) bonds amount-ing to 12,000,000,000 marks delivered by July 1,1921, bearing interest at 5 per cent, and withan annual sinking fund of 1 per cent; (6) bondsamounting to 38,000,000,000 marks deliverableNovember 1, 1921, and bearing interest andsinking fund as in the case of the first series;(c) bonds amounting to 82,000,000,000 marks,with interest and sinking fund provided for asbefore. As deduction from the amount of the(c) bonds, however, there will be reckoned theallowances already specified above. Thesethree classes of bonds become successive lienson incomes which are described as follows:" (a) The proceeds of all German maritime andland customs and duties, and in particular theproceeds of all import and export duties;(6) the proceeds of a levy of 25 per cent on thevalue of all exports from Germany, exceptthose exports upon which a levy of not lessthan 25 per cent is applied under, legislationreferred to in article 9; (c) the proceeds of suchdirect or indirect taxes or any other funds asmay be proposed by the German Governmentand accepted by the committee on guarantees in


JUNE;, 1921. FEDERAL, RESERVE BULLETIN. 651

addition to, or in substitution for, the fundsspecified in (a) or (6) above."

Out of the revenues thus set apart (or undercertain conditions from others) Germany is re-quired to pay " (1) the sum of 2,000,000,000gold marks; (2) (a) a sum equivalent to 25 percent of the value of her exports in each periodof 12 months, starting from May 1, 1921, asdetermined by the commission, or (&), alter-natively, an equivalent amount as fixed inaccordance with any other index proposed byGermany and accepted by the commission;(3) a further sum equivalent to 1 per cent of thevalue of her exports, as above defined, or,alternatively, an equivalent amount fixed asprovided in paragraph (6) above/7 A featureof doubt with reference to the operation ofthese provisions is afforded by the ambiguousprovision which follows immediately the lan-guage already quoted with respect to the sumsto be used in making the reparations payments:"Provided always that when Germany shallhave discharged her obligations under thisschedule, other than her liability in respect ofoutstanding bonds, the amount to be paid ineach year under this paragraph shall bereduced to the amount required in that yearto meet the interest and sinking fund on thebonds then outstanding.7' Interpreting thisprovision, however, Mr. Lloyd-George in hisaddress in the House of Commons on May 5,used the following language:

"* * * It is clear that at first there willbe not enough to pay interest, and you canhardly expect to receive enough money to payinterest upon the whole of the amount due,which is 6,600,000,000, and 6 per cent uponthat would be 400,000,000 sterling. Thencomes the question what is to be done with theinterest in respect of the unissued bonds.Under the treaty, Germany was debited withinterest at 5 per cent upon the whole of thedebt due from her, with certain powers leftto the reparations commission to vary theamount. What is proposed to be done nowis that 25 per cent on the exports is to bedevoted, with the fixed annual sum, to thepayment of the bonds which will be issued.If there is a balance over and above that forany given year, it is to be devoted to the pay-ment of interest upon the unissued bonds,which represents the uncovered capital of thedebt, together with a sum equal to 1 per centof her exports. Beyond that the interest willbe wiped out. It will not accumulate against

Discount andinterest rates.

her, and that is a very important concession,and I hope it will have important effects.77

Not the least interesting clause in the repa-rations protocol is found in paragraph 5 of thatdocument, which requires that " Germany shallpay within 25 days from this notification1,000,000,000 gold marks in gold or approvedforeign currencies or approved foreign bills oiin drafts at three months on the German Treas-ury, indorsed by approved German banks andpayable in pounds sterling in London, in francsin Paris, in dollars in New York, or any cur-rency in any other place designated by thecommission. These payments will be treatedas the two first quarterly installments of pay-ments provided for in article 4, paragraph I.77The provision of article 4, paragraph 1, referredto, is the language already quoted above asregards a lump-sum payment of 2,000,000,000marks and an additional amount equal to 25per cent of her exports.

Within the past month a readjustment ofrates on 90-day paper haskeen macle ^J several Jb ederalReserve Banks, with the result

that the entire system is now practically upona 6-6J per cent interest footing. This down-ward movement reflects and parallels thestronger and more liquid condition of the Re-serve Banks themselves. As compared witha year earlier, gold holdings at the close ofMay show an increase of some $448,000,000,while bills held reflect a decline of $972,000,000.A falling off of notes in circulation by about$376,000,000 still further emphasizes the extentof the liquidation that has occurred. Improve-ment in condition has been by no means evenor uniform throughout the system, bankslocated in the agricultural regions finding itnecessary to finance the "carry-over77 ofproducts from last season, whereas liquidationhas been carried to an advanced point in themore highly developed manufacturing andcommercial parts of the country. Liquidationin Reserve Banks, moreover, parallels thechange of condition in member banks of theFederal Reserve System.

It is still too early to state the results to beexpected from changes in Reserve Bank ratesupon commercial and market interest charges.While an easing of the direct rate to bank



customers is reported in some quarters, callcharges have maintained themselves at a levelfully as high as that of recent months. Timemoney, too, has been as scanty and expensiveas in the past, while reductions in open-market rates on commercial paper have beenvery limited at best.

Inasmuch as the Bank of England had re-duced its 7 per cent rate on 90-day paper to 6 Jper cent prior to the date when general reduc-tions were undertaken by the Federal ReserveBanks, while a cut in the British treasury billrate to 5f per cent had also taken place, it willbe seen that Government and bank obliga-tions both in Great Britain and in the UnitedStates are upon a basis of substantial simi-larity. Reductions of rates to 6 \ per cent havealso been made by some of the Scandinavianbanks as well as by Swiss, Belgian, and someother central banks. It may therefore be saidthat there has been a general downward move-ment of central bank charges.

The level of prices has continued to be ofprimary importance as a busi-ness factorfar more so thanhas been true of the discount

and interest situation. Recent index numbersshow that the decline of prices throughout theworld instead of ceasing has continued although,as remarked on former occasions, at a some-what slower'rate. The following brief table ofindex numbers for the principal countries,using for the United States the price index ofthe Federal Reserve Board, compiled for in-ternational comparisons, shows how the changein prices, to which reference has just beenmade, is progressing.

Wholesale prices in leading countries.[Average prices in 1913=100.]

Prices andwages.

United StatesUnited Kingdom, StatistFranceItalyGermany iSwedenJapanCanadaAustralia1India*

* Base period, middle of 19J4.

Peakin

1920.

264313588670

1,714366321263236218

ATIS21,

index.

1

2

143199347584429229190187171183

Percent ofdecline.

* March, 1921.

Data received since the publication of theseofficial index numbers by private price report-ing agencies show that a further reduction ofprices has occurred during recent weeks. Thelatest number furnished by Bradstreet's forJune 1, for example, shows a falling off duringMay of 1.9 per cent. It is now estimated thatan actual decline in cost of living from thepeak point, amounting to approximately 20per cent, has taken place. This figure must,of course, be received with caution because ofthe lack of uniformity in the data upon whichit is based. The continued fall of priceindexes has been a source of surprise to someobservers who had been of the opinion thatthe limits of the movement had been reachedsome time ago. The change, however, is pri-marily due to a readjustment of price relation-ships among themselves, some commoditieswhich had failed to share in the general down-ward movement yielding atlast to the influenceswhich had tended to lower the prices of othercommodities. This general settling of theprice level does not, it may be supposed, pointto any further sharp general reduction but mayperhaps be considered as the final step of pricereadjustment. Undoubtedly it is so regardedby many business men, as is shown by someslight increase in their disposition to make newcommitments based upon quotations and valuesexisting at the present time in the variousbranches of industry. Hesitation, due to thefact that some are still uncertain whethertheir principal commodities will or will notrecede still further, has tended to prevent anyconsiderable accumulation of advance orders,so that various industries which report them-selves in decidedly improved condition so faras the volume of production is concernednevertheless report that their advance "book-ings" are still upon an abnormally narrowbasis, numerous buyers working from hand tomouth because of the belief that they may beable to take advantage of later changes inprices. This hesitation is said to be morewidely observable among the larger retaildistributors than those among the smalleroperators.

The readjustments in wages which havegone on during the month have been facilitated


JUNE, 1921. FEDERAL RESERVE BULLETIN. 653

by the fact that the cost of living had unmis-takably fallen, and that a given wage re-turn to labor necessarily implied a consider-ably greater purchasing power than in thepast. Both the settling down of the pricelevel upon a more nearly final basis and theestablishment of closer correspondence betweenliving cost on the new scale and wages havestrongly helped to lay the foundation forimprovement in business which can now beseen in various directions.

Without waiting for improvement in theexport and general foreigntrade situation, domestic busi-ness has begun to show a turn

for the better in several lines. Reference hasalready been made in summary form at theopening of this review to sundry of the mainfactors which have proven of notable interestfrom the standpoint of domestic business re-covery during the past month. The indexesof production, movement, and use of goodscompiled by the Board are not as fully repre-sentative of existing conditions to the presentdate as are the more general indicationsalready referred to, but they afford the resultsof statistical inquiry into the situation up to adate about 30 days ago.

Receipts of live stock at15 western markets(in thousands of head)

Receipts of grain at 17interior centers (inthousands of bushels)

Sight receipts of cotton(in thousands of bales)Shipments of lumber

reported by 3 asso-ciations (in millionsoffeet)

Bituminous coal pro-duction (in thou-sands of short tons)..

Anthracite coal produc-tion (in thousands ofshort tons)

Crude petroleum pro-duction (in thou-sands of barrels)

Pig iron production (inthousands of longtons)

Steel ingot produc-tion (in thousands oflong tons)

Cotton consumption(in thousands of bales)Wool consumption (in

thousands of pounds)

March, 1921.

Total.

4,700

78,899

554

664

30,392

7,406

40,965

1,596

1,571

438

47,181

Rela-tive.

114.5

176.6

100.2

80.1

119.2

115.1

58.2

59.6

77.3

70.4

April, 1921.

4,367

51,900

565

713

27,553

7,703

40,039

1,193

1,214

409

53,071

106.4

116.1

102.2

92.9

72.6

124.0

113.5

43.5

46.0

72.1

79.2

April, 1920.

Total.

4,106

44,686

553

767

37,939

6,214

35,583

2,740

2,638

567

06,935

Rela-tive.

100

100

100

100

100

100

100

100

100

100

100

Although, as noted a month ago, the fiscalcondition of the Government

T r e a s u r y r j x i . J. Jfinance s c e a s e ( * ^ e a s g r e a^ and

immediate a factor in privatebusiness relationships as was true during theyears immediately after the armistice, Treas-ury operations continue to furnish a factorof large significance in current affairs. Dur-ing the past month the department has placedupon the market an issue of certificates ofindebtedness amounting to $200,000,000, forwhich, however, a total of subscriptions ag-gregating $532,000,000 was received, whileallotments amounting to $256,000,000 weremade. Ten of the Federal Reserve districtsoversubscribed their quotas, those which didnot do so being the southwestern districtswhere very strong local demand for funds hascontinued to be felt. In the ordinary financialoperations of the department there has beenan outlay for the month of May aggregating$368,450,545 and an income of $223,706,399,the transactions thus showing a deficit onordinary account of $144,744,146. With-drawals from the banks in the New York dis-trict for the purpose of meeting the variousrecurrent obligations of the Governmentinterest on Liberty bonds due May 15 andothers maturing during the monthhavetended to cause temporary unsettlement offinancial conditions, with possibly less liberalityon the part of commercial banking institutionsin making advances. This influence, however,while of the same general description as hasbeen witnessed at the same season in formeryears, has this year been of materially lessdirect influence upon ordinary banking andmoney prospects. During the month the Sec-retary of the Treasury has recommended toCongress careful consideration of a program ofrevenue revision which would provide for therepeal of the excess-profits tax and for thebroad reconstruction of the income tax in cer-tain important particulars, with the possibleaddition of a tax similar in nature to the taxupon undistributed profits of corporations,suggested by former Secretary Houston. Ex-tension of the consumption taxes and revisionin other directions have likewise been called


654 FEDERAL BESERVE BULLETIN. JUNE, 1921.

to the attention of the legislative body. ThePresident, in an address at New York City onMay 23, has foreshadowed an important changein the treatment of the Government's holdingsof Allied obligations, indicating that within areasonable time it may be expected that pro-vision may be made for placing these obligationsin the hands of the people.

During the month ending May 10 the netinward movement of gold was

Gold and silver $ 8 8 ? 6 4 6 j 0 00, as compared with

a net inward movement of$77,611,000 for the month end-

ing April 10. Net imports of gold sinceAugust 1, 1914, were $1,141,393,000, as maybe seen from the following exhibit:

[In thousands of dollars.]

imports and ex-ports.

Aug. 1 to Dec. 31, 1914Jan. 1 to Dec. 31, 1915Jan. 1 to Dec. 31, 1916Jan. 1 to Dec. 31, 1917Jan. 1 to Dec. 31, 1918Jan. 1 to Dec. 31, 1919Jan. 1 to Dec. 31, 1920Jan. 1 to May 10,1921

Total

Imports.

23,253451,955685,745553,71361,95076,534

417,181271,611

2,541,942

Exports.

104,97231,426

155,793372,17140,848

368,185322,091

5,0631,400,549

Excess ofimports.

181,719420,529529,952181,54221,102

1291,65195,090

266,548

1,141,393

i Excess of exports.

Sweden furnished $26,488,000, England$22,030,000, France $10,248,000, the Nether-lands $7,093,000, and the French East Indies$6,006,000 of the $89,189,000 of gold importedduring the monthly period ending May 10,other countries of Europe and the Orient fur-nishing most of the remainder. Of the goldexports, amounting to $543,000, about two-fifths, or $223,000, was consigned to Canadaand the remainder to Hongkong, Mexico, andCuba.

Since the removal of the gold embargo onJune 7, 1919, total gold imports and exportshave amounted to approximately $721,324,000and $680,950,000, respectively, the net gainbeing approximately $40,374,000. Of the totalexports, $195,414,000 was consigned to Japan,$146,555,000 to Argentina, $72,199,000 toHongkong, $67,396,000 to China, $41,052,000to British India, $29,778,000 to Spain, andthe remainder principally to Mexico, Uruguay,the Dutch East Indies, Canada, the StraitsSettlements, and Venezuela.

During the same monthly period the netinward movement of silver was $2,644,000, ascompared with a net inward movement of$860,000 for the month ending April 10. Netexports of silver since August 1, 1914, were$452,956,000, as may be seen from the fol-lowing exhibit:

[In thousands of dollars.]

Aug. 1 to Dec. 31,1914.Jan. 1 to Dec. 31,1915..Jan. 1 to Dec. 31,1916..Jan. 1 to Dec. 31,1917..Jan. 1 to Dec. 31,1918..Jan. 1 to Dec. 31,1919..Jan. 1 to Dec. 31,1920..Jan. 1 to May 10,1921..

Total.

Imports.

12,12934,48432,26353,34071,37689,41088,06019,747

400,809

Exports.

22,18253,59970,59584,131

252,846239,021113,61617,775

853,765

Excess ofexports.

10,05319,11538,33230,791

181,470149,61125,55611,972

452,956

situation.

1 Excess of imports.

Mexico furnished over 53 per cent, or$2,840,000, of the $5,333,000 of silver im-ported during the monthly period ending May10, the remainder coming principally fromEngland, Peru, Honduras, and Canada. Silverexports, amounting to $2,689,000, were con-signed principally to England, Hongkong,Mexico, and Canada.

Continued loan liquidation, though at aslackened rate, is shown byreporting member banks forthe period between April 22

and May 18, the total amounting to about$180,000,000, compared with $318,000,000 forthe preceding four weeks. A larger amountof liquidation is shown for commercial paperproper; bills secured by Government obliga-tions show a moderate reduction, while papersecured by corporate stocks and bonds showsan increase of about $46,000,000, apparentlyas the result of member bank financing ofrecent large stock and bond flotations. Whilethe reporting banks reduced their loans anddiscounts by $180,000,000, they were able tocurtail their own borrowings from the FederalKeserve Banks by $269,000,000. Rate reduc-tions adopted by six Federal Reserve Banks inApril and during the early part of May appar-ently have had but little effect in checking theliquidation movement. It is noteworthy thatthe decrease in the accommodation obtained



from Federal Reserve Banks by the 821 reportingbanks in leading cities is practically equiva-lent to the reduction shown for the sameperiod in total discounts held by the FederalReserve Banks. A significant inference is thatcredit liquidation has been confined mainly tothe large cities; while country banks have notmaterially reduced loans to their customersand, consequently, have not been able to re-duce the amount of accommodation obtainedfrom the Federal Reserve Banks. Recentliquidation has been largely of commercial andindustrial paper, and not of agricultural paper.

In the following table are shown figures ofprincipal items in the weekly statement ofreporting member banks:

Reporting member banks.

[In millions of dollars.]

Date.

Apr. 22.Apr. 27.May 4...May 11.May 18..

Numberof

report-

821821821821821

Loansand dis-counts

andinvest-ments.1

15,62915,60315,58215,48915,447

Redis-counts

and billspayable

withFederalReserveBanks.

1,5831,5231,5331,5061,314

Ratio ofaccom-moda-tion(3+2).

10.19.89.89.78.5

Net de-mand

deposits.

10,12710,13810,21410,25210,156

1 Including rediscounts with Federal Reserve Banks.

Developments in the Federal Reserve bank-ing field are chiefly a further gain of $95,000,000of gold, offset in part by a loss of $30,000,000in other cash reserves, and a continued reduc-tion in Federal Reserve note circulation, whichon May 25 stood at $2,735,000,000, comparedwith $2,857,000,000 five weeks earlier. Thevolume of Federal Reserve notes in circulationon the latest report date is the lowest recordedsince October 3, 1919, the reduction from thepeak reached on December 23, 1920, amount-ing to $670,000,000, or 20 per cent, and fromthe amount on May 28, 1920, to $372,000,000,or 12 per cent. The increase in cash reservesand the reduction in note circulation, togetherwith a decline of $43,000,000 in deposits, hasresulted in a further advance of the reserveratio from 54.1 per cent on April 22 to 57.6 percent on May 25, the larger share of thisadvance being due to the gain in gold.

Some of the principal changes in the statusof the Federal Reserve Banks are brought outin the following exhibit:

Federal Reserve Banks.[In millions of dollars.]

Date.

Apr. 22Apr. 27May 4.May 11May 18.May 25

Bills discounted.

Securedby

UnitedStates

Govern-mentobliga-tions.

943

Allother.

1,171892918 !775 I794

1,1431,1741,1181,0681,076

Totaldeposits.

1,7491,7261,7291,7331,7171,706

FederalReservenotes inactual

circula-tion.

2,8572,8302,8292,8052,7672,735

Reserveratio.

54.155.055.355.956.857.6

Mr. John R. Mitchell, who was nominatedby the President as member of

meetings!161 *** t h e Federal Reserve Board,and confirmed by the Senate

on April 29, assumed office on May 12.Mr. F. A. Delano, former member of the

Federal Reserve Board, has been appointed aClass C director of the Federal Reserve Bankof Richmond for the term expiring December31, 1921.

The usual quarterly session of the FederalAdvisory Council took place at Washingtonon May 16.

Index-Digest of the Federal Reserve Bulletin.The index-digest of the FEDERAL RESERVE

BULLETIN for the years 1914 to 1920, inclusive,will be ready for final printing within a veryshort time. As the edition is to be a limitedone and the Federal Reserve Board desires tobe in position to supply all banks and othersdesiring it with copies, it is requested that allinstitutions wishing to obtain copies send intheir orders at once, so that the Board mayaccurately gauge the number of copies to haveprinted.

The index-digest of the FEDERAL RESERVEBULLETIN was compiled by Mr. C. S. Hamlin,primarily for the use of the Federal ReserveBoard and of the Federal Reserve Banks, andcontains an abstract of all published decisionsand rulings of the Federal Reserve Board andof the other matter contained in the BULL XIN.

The price will be $2 per volume, bound incloth in the same manner as the BULLETIN.Subscriptions should be sent to the FederalReserve Board, Washington, or to the respec-tive Federal Reserve Banks,


6 5 6 FEDERAL RESERVE BULLETIN. JUNE, 1921.

BUSINESS, INDUSTRY, AND FINANCE, MAY, 1921.Slow and greatly retarded recovery in production and distribution has been in progress

during May. What appears to be a definite turn for the better has been taken by some branchesof domestic industry, but foreign trade is still arrested or depressed. The more hopeful atti-tude which showed itself among business men during April has continued, and in some indus-tries is preparing the way for active development. Gains made during the preceding monthor two have been generally retained, reaction being only sporadic.

Foreign trade continues its movement toward a more nearly equal balance of imports andexports. There has been a further falling off in our foreign shipments and some increase inreceipts from abroad, the figures being especially noteworthy when stated as physical volumesof goods. Failure of normal industrial conditions in foreign countries to recover and specialcauses of trade impairment, such as the British coal strike, have hampered progress, whiledisturbed exchange and inadequate financial facilities have made resumption of activity amatter of special difficulty in some directions.

Readjustment in wages, which was given special consideration a month ago, has pro-ceeded but has been slow, while adjustment between wages and prices (especially retail prices)is exhibiting special difficulties.

Irregularity and lack of uniformity still exist in marked degree over large sections of theretail price field, and qualified observers forecast serious obstacles to the final adjustment ofwages to permanent levels, unless retail prices move much faster to their final basis. Settlingof prices has proceeded in various wholesale lines to an extent that is reflected in less note-worthy average changes; but this process is apparently more truly an "evening up" or adjust-ment to a level already reached than it is a new dip or downward movement toward generallylower values. High costs of transportation, to which reference was made a month ago as oneof the elements retarding readjustment, continue to produce a restrictive influence and are thesubject of active investigation and discussion.

The uneven character of the business readjustment of the month is illustrated by condi-tions in the various individual industries. In some of the latter an approach to stabilizationhas been made. This condition notably exists in the textile trade and in the boot and shoeindustry. Contrasted with industries of this type are several that are either at low level ormoving further downward. In iron and steel reaction is still progressing. Buying is confinedlargely to immediate needs and as a consequence both u. ^lled orders and current productionshow declines. In wholesale and retail trade there has b en some recession, although suchrecession has been much more pronounced in the wholesale than in the retail field. The antici-pated improvement in the labor market due to the opening of spring agricultural activities hasnot proved sufficient to absorb the surplus resulting from the reduced employment attendantupon present industrial conditions.

Agricultural developments of the month are of a somewhat uncertain character. Whereasclimatic and soil conditions had previously been favorable, the wet cold weather of May inter-fered with crop development, and as a matter of fact great damage has been done in certainsections of the country. The fruit crop over wide areas has suffered severely.

Financially, May has been a month of increasing strength and of more prosperous outlook.There has been, in various sections, an easing of the demand for funds which has resulted inpart from the acceptance of lower price levels and in part from the adjustment of business tonew conditions.

The business outlook for the season thus continues on the whole more favorable, but withlittle prospect of immediate sharp improvement of conditions.



AGRICULTURE.

The agricultural situation during the monthmay be characterized as unfavorable andbackward. Although the unusually mild win-ter was exceptionally favorable for the prepa-ration of the ground for the 1921 crops andpermitted a rapid growth of all the grains, theunseasonable spring weather has been injuriousto all crops. The weather has had an illeffect upon the maturing of winter wheat,while it has retarded the growth of springwheat. District No. 8 (St. Louis) reportsthat "condition of the growing winter wheatcrop in this district is still favorable, despitethe fact that the growth has been checkedsomewhat by the recent cold, wet weather."Although the condition of winter wheat isreported to be fair in Arizona and New Mexico,the Texas crop has shown a considerabledeterioration, which is attributed to drought,high winds, and the inroads of green bugs andrust. In the central and western spring wheatbelts showers have occurred and the tempera-ture has been generally favorable, aiding thegrowth of wheat; the seeded grains are up to asatisfactory stand. Although district No. 9(Minneapolis) reports that "plowing and seed-ing of corn is progressing nicely in Minnesotaand South Dakota/' in most sections theplant has been retarded. Thus, district No. 8(St. Louis) states that "corn planting in thenorth has been retarded by excessive moistureand, due to the same cause, considerable re-planting has been required in the south." Indistrict No. 11 (Dallas), likewise, "not onlyhas the weather been too cool for the bestgrowth of cotton, corn, and small grains, butthese crops have been adversely affected bythe extremely uneven rainfall throughout thedistrict.77 The cold weather has not onlyretarded the growth but has prevented germi-nation of the seed. In many instances re-planting of the various crops has been neces-sary, while in other sections, where replantingwas avoided, a poor stand has been the result.

COTTON.

The development of the cotton crop through-out the southern area has been retarded byunfavorable weather conditions. Thus, indistrict No. 11 (Dallas), "the effect of the coldwave occurring in April and May was to checkthe growth of cotton where the plant hadgerminated and to retard its germinationelsewhere.77 In west Texas plowing and plant-ing have been delayed by drought, while inmany sections the cold, wet ground has delayedthe necessary replanting. District No. 8 (St.Louis) reports that "planting, cultivation, and

replanting of cotton has been seriously delayedby the overabundant precipitation.77 Infor-mation received from all districts indicatesthat the acreage planted in cotton has beenconsiderably reduced. The results of a recentsurvey in 150 counties of Texas made by theFederal Reserve Bank of Dallas show that thereduction in that area is about 30 per cent.District No. 8 (St. Louis) reports that "theArkansas Cotton Trade Association estimatesthat the acreage reduction in that State willamount to 35.3 per cent.77

TOBACCO.

The new tobacco crop has been transplantedin South Carolina, and in district No. 8 (St.Louis) " tobacco beds are reported in goodcondition, awaiting favorable weather for trans-planting/7 In this district "the acreage to beplanted is generally reported short/7 and re-ports from district No. 5 (Richmond) indicatereductions in both North Carolina and Vir-ginia, but the acreage in South Carolina hasbeen slightly increased. The leaf tobaccosituation has been very quiet. District No. 8(St. Louis) reports that the "tobacco marketsare practically all closed for the season, leavinga large amount of the leaf in farmers7 hands,most of which is of inferior quality.77 I t is re-ported from district No. 3 (Philadelphia) thatmanufacturers are not buying the new tobaccoon any large scale. Thus it is stated that"purchasing by manufacturers has not beenincreased within the past month, and the pricetrend continues to be lower.77 The cigar busi-ness appears to be in a rather satisfactory con-dition. Although the demand is small and forthe cheaper grade of cigars, district No. 3(Philadelphia) states that'c in most cases opera-tions and sales have about reached a point ofadjustment which prevents overstocking andat the same time furnishes a supply of cigarssufficient to meet ordinary needs.7

FRUIT.

Although every fruit section has sufferedfrom cold weather and frost, the extent of thedamage varies with the different sections.District No. 11 (Dallas) reports that "fruit{>rospects indicate a larger and more satis-actory yield than that of 1920." On the otherhand, district No. 8 (St. Louis) states that"prospects for fruit in all States of the districtare probably the poorest on record/7 In dis-trict No. 12 (San Francisco) deciduous fruitcrops have all suffered from frost damage but"a greater new acreage coming into bearingthis year and an exceptionally heavy set offruit have offset the effect of frost damage,


658 FEDEBAL, RESERVE BULLETIN. JUNE, 1921.

and the reduction in total yield this year ascompared with 1920 will not be so marked aswas expected from earlier reports/7 Thereport further says that "in the Pacific North-west present indications are for the largestapple crop in the history of that section."However, "the stone fruits suffered approxi-mately 30 per cent damage."

GRAIN MOVEMENTS.

The movement of grain to market duringApril has reflected a seasonal decline. Thereceipts of wheat, however, have been an ex-ception. At Minneapolis and Duluth wheatreceipts were 21.7 per cent larger than lastmonth and 31.1 per cent larger than receiptsduring April, 1920. The receipts at the fourprincipal markets in district No. 10 (KansasCity) were unusually heavy for the season ofthe year, being 6,307,300 bushels or 136.4 percent larger than receipts during April, 1920.Minneapolis and Duluth receipts of corn, oats,and barley have all shown very large de-creases from last month, namely, 64.4 per centfor corn, 67.2 per cent for oats, and 39.9 percent for barley. Decreases in the receipts ofthese grains were also noted at the four prin-cipal markets of district No. 10 (Kansas City).This district reports that "the farmers areapparently holding much of their corn until agood crop is assured for this year." On theother hand, April shipments of grains fromMinneapolis and Duluth were 35.9 per centlarger than last month, but were 16.8 per centsmaller than shipments during April, 1920.Stocks of all grains at the close of April in theterminal elevators at these cities were 15.3per cent smaller than at the close of March,but were 14.8 per cent larger than at the closeof April, 1920. The price of grains duringApril generally ruled lower than during March,the April median price of cash wheat No. 1Dark Northern at Minneapolis being $1.57 perbushel, as against $1.72 during March. Priceshave taken an upturn during May as a resultof continued reports of crop deterioration.

FLOUR,

Somewhat greater demand for flour isreported in certain sections. In district No.8 (St. Louis) an increase in domestic sales isascribed to "low stocks in the hands of retailersand consumers generally," although trade asa whole is far below normal. In district No.10 (Kansas City) there is a slight improvementin the bakery demand, although jobbers arebuying flour sparingly. Export demand hasbeen sustained in the latter district, whilein district No. 8 (St. Louis) it has evidenced

decided symptoms of improvement. Produc-tion during April showed some increase overMarch. Although average April productionin the United States for the past six years hasdecreased about 4 per cent from the Marchfigure, output of mills manufacturing 75 percent of the flour production in district No. 9(Minneapolis) during the five weeks endingApril 30 increased 4 per cent over the outputduring the five weeks ending March 26 (from2,220,685 barrels to 2,312,385 barrels). Thiswas 28 per cent greater than the output of1,814,180 barrels during the correspondingperiod of 1920. These mills were operatingat about 43 per cent of capacity during April,1921, Output of reporting mills in district-No. 10 (Kansas City) increased 19 per centin April, 1921, over the April, 1920, figure(from 998,981 barrels to 1,193,081 barrels),and the mills operated at 54 per cent of capac-ity. Although the output fell off during thefirst week of May, it was again higher duringthe second week than during the correspondingweek last year. Mill operation in district No.8 (St. Louis) during the 30-day period endingMay 15 was at from 40 to 50 per cent of ca-pacity. On the other hand, millers in thePacific Northwest, due to the lack of demandfor flour, have been more active during thepast few months in exporting wheat than inmanufacturing flour, rfone of the mills inthat section are heavily stocked with wheat,and the reports of 13 representative firmsshow 610,502 bushels on hand May 1, as com-pared with 1,024,522 bushels on April 1 and1,039,605 bushels on May 1, 1920. Outputdecreased from 629,417 barrels reported by76 mills in March to 563,166 barrels reportedby 75 mills in April, and the mills operatedat 34.5 per cent of capacity during April ascompared with 45 per cent during March and69.8 per cent during April, 1920. The price offlour showed a downward tendency during April,but since the opening of May has again in-creased with the increase in the price of wheat.

LIVE STOCK.

As a result of the cold weather, both rangesand stock have undergone some deteriorationin various sections, but the adverse effect ingeneral has not been pronounced because ofthe fact that stock had been in good conditionas a result of the mild winter and plentifulsupply of feed. There has, however, been aserious shortage of moisture in the Texas Pan-handle, eastern New Mexico, and Arizona.Stock in that section is reported in poorcondition and there has been considerablefeeding in New Mexico. Cattle in large



numbers have been moved from the droughtstricken areas into Texas pastures that havebeen recently vacated in "what is said to bethe heaviest grass cattle movement in manyyears." Receipts of each of the three principalclasses of live stock during April show afalling off from the March figures, but in thecase of cattle and calves alone are they lessthan for the same period last year. Receiptsof cattle and calves at 15 western marketsduring April were 994,916 head, as comparedwith 1,119,548 head during March and 1,037,350head during April, 1920. The respective indexnumbers are 99, 111, and 103. Receipts ofhogs decreased from 2,390,480 head duringMarch, corresponding to an index number of109, to 2,279,495 head during April, corre-sponding to an index number of 104, as com-pared with 2,109,195 head during April, 1920,corresponding to an index number of 96.April receipts of sheep were 1,077,806 head, ascompared with 1,161,549 head in March and927,800 head in April, 1920. The respectiveindex numbers are 79, 85, and 68. In districtNo. 12 (San Francisco) there has been anincrease in shipments of grass-fed steers andspring lambs to eastern markets, while indistrict No. 11 (Dallas) the spring marketmovement "has been slow to materialize."The average price of cattle and hogs duringApril was decidedly lower than in March.The most recent quotations appear to showprices at approximately the same levels.Sheep prices during April and May showedlittle change. Production of packing-houseproducts continues on a greatly curtailedscale, but some improvement was noted inApril business. There were signs of a revivaloi buying for export account.

PETROLEUM.

Petroleum production continued to increaseduring April and the early part of May, de-spite the fact that the March output waslarger than that recorded in any previousmonth. The Kansas-Oklahoma field, whichshowed the most important increase in pro-duction, had an average daily production of386,000 barrels during the four weeks endingMay 13, as compared with an average dailyproduction of 370,500 barrels for the fourweeks ending April 18, and an average dailyproduction of 356,000 barrels for the corre-sponding period in 1920. The average dailyoutput of California was 338,981 barrels duringApril, as compared with 337,683 barrels inMarch. In contrast to these increases theaverage daily production of the oil fields indistrict No. 11 (Dallas) continued to decline

from 403,243 barrels in February and 394,174barrels in March to 386,249 barrels in April.Drilling operations decreased during April,although there is normally a considerableincrease at this season of the year. DistrictNo. 11 (Dallas) led in this decline with aninitial average daily production of 97,176barrels in April, as compared with 139,413barrels in March. The number of wells com-pleted in that district dropped from 395 to359. However, an entirely new field wasopened by the discovery of a 5,000-barrel wellnear Haynesville, La. The number of wellscompleted in district No. 10 (Kansas City)declined from 768 in March to 588 duringApril, but the average daily initial productiononly declined from 71,460 barrels to 65,147barrels. Fifty-eight new wells, with an initialdaily output of 18,470 barrels, were openedduring April in California. Pipe-line com-panies during April announced a cut of 25cents in the price of crude oil in Texas. Thisreduced the price to $1.50 in north Texasfields and to $1 in the coastal section. Thesame reduction was made in prices of all gradesof crude oil in certain of the California fields,but there was an increase in the price of Penn-sylvania crude oil. The prices of most of theleading petroleum products declined duringApril, but the declines were more marked in thecase of those products which are used purelyfor industrial purposes than in the case of thoserequired by automobiles.

COAL.

Demand for bituminous coal is still veryslack in all sections of the country. How-ever, production has run considerably belowconsumption, as is evidenced by a decline instocks from about 45,000,000 tons on January1 to 37,000,000 tons on April 1. Productionfor April amounted to 27,875,000 tons, as com-pared with 30,328,000 tons during March and37,939,000 tons during April, 1920. Therespective index numbers are 75, 82, and 102.Many mines in Alabama and Tennessee areshut down for lack of orders, and others areoperated only two or three days a week.District No. 10 (Kansas City) notes an im-provement in production, but reports a greatlack of market demand, even in the case ofrailroad fuel. Production of anthracite coalincreased somewhat during April and amountedto 7,914,000 tons, corresponding to an indexnumber of 107, as compared with 7,603,000tons during March, corresponding to an indexnumber of 103, and 6,225,000 tons duringApril, 1920, corresponding to an index numberof 84. Reports from district No. 3 (Phila-


660 FEDERAL, RESERVE BULLETIN. JUNE, 1.021.

delphia) show an increase of nearly 50 per centin the stocks of retailers between January 1and April 1 and a considerable decline in con-sumers' supplies. Leading retailers in thatdistrict announced advances of 25 cents perton for domestic sizes during the first two weeksof May, but this action has failed to stimulatethe demand. Business in steam sizes con-tinues to be very stagnant, as a result of cur-tailment in industrial operations and severecompetition from bituminous sources. In dis-trict No. 2 (New York) demand for egg andstove sizes of anthracite is reported fair, butother sizes have almost no market. Beehivecoke production is still very low, and ovens inthe Connellsville district are operating at lessthan one-fifth of capacity. B}^-product cokeproduction is at a higher rate, but this is due,in part, to the demand for the by-products.Accumulation of stocks of coke has resulted instrenuous price cutting.

IRON AND STEEL.

The iron and steel industry continues in anunsettled condition. The volume of new busi-ness is small and largely for immediate needs,in spite of the price reductions announced sometime ago. In fact, it is stated that when therehave been larger tonnages to distribute buyersare usually shopping extensively, with theresult that some concessions in prices havedeveloped, for example, on wire nails. Exporttrade, it is stated, continues dull. Seasonalincreases in purchasing, however, are shownby the automobile and oil industries. Thesehave given rise on the one hand to some demandfor sheets, bars, and strip steel, as well as tothe release of orders on which deliveries hadbeen suspended, and on the other hand to somedemand for tubular goods. Automobile man-ufacturers, it is stated from district No. 3 (Phil-adelphia), are, however, apparently drawingheavily on their accumulated stocks, and thedemand in both industries is reported to befar from normal. There has been some increasein demand for fabricated steel for structuralwork. Thus the report of the Bridge Buildersand Structural Society shows a further increasein orders placed with its membership from 29per cent of capacity in March to 32 | per centin April. The unfilled orders of the UnitedStates Steel Corporation, however, show a fur-ther falling off, reflecting the conditions indi-cated above. At the close of April they were5,845,224 tons, as compared with 6,284,765tons at the close of March. The respectiveindex numbers are 111 and 116. It is esti-mated that in general the industry is now oper-ating at from 35 to 40 per cent of capacity.

The number of furnaces in blast further de-creased during April from 103 at the openingof the month to 96 at the close. Pig-iron pro-duction during April was 1,193,041 tons, corre-sponding to an index number of 51, as com-pared with 1,595,522 tons during March, cor-responding to an index number of 69. Never-theless, it is stated from district No. 3 (Phila-delphia) that stocks of pig iron are undoubtedlyaccumulating. Many blast furnaces in thatdistrict are being operated merely to utilize thecoke output of by-product ovens, which havebeen kept in operation as a result of the de-mand for the by-products and because of thedanger of ovens deteriorating if closed. Steel-ingot production has likewise decreased from1,570,978 tons in March to 1,213,958 tons inApril. The respective index numbers are67 and 52. In district No. 6 (Atlanta) alonesteel mill operations are reported to show im-provement.

NONFERROUS METALS.

Copper production declined very consider-ably during April, as a result of the closing ofmost of the large copper mines. Production ofreporting companies in northern Michiganamounted to only 4,282,414 pounds in April, ascompared with 11,201,915 pounds in March and11,907,128 pounds in April, 1920. District No.12 (San Francisco) reports that for those mineswhich are still operating, copper production isapproximately 47 per cent of capacity. As aresult of the curtailment of mining operationsthe price of copper (New York, net refinery)rosefrom 12.375 cents to 12.75 cents during May,but volume of demand has not shown any note-worthy improvement. The price of zinc in-creased slightly during the latter part of April,but receded during May to a level only slightlyhigher than that recorded in the middle ofApril. Zinc production during April amountedto 16,550 tons, as compared with 15,741 tonsin March. Stocks of zinc on April 30 totaled79,581 tons, as compared with 80,990 tons onApril 1. Lead prices continued to advanceduring April and May, both for ore at the mineand for refined lead at New York and St.Louis. District No. 10 (Kansas City) reportsthat, as a result of the increase of lead oreprices, additional properties are opening eachweek and a considerable portion of the laborsurplus is being absorbed.

COTTON TEXTILES.

Prices of raw cotton advanced somewhatduring April and quotations manifested lessinstability from day to day. Consumptionduring the month amounted to 408,882 bales,



or 29,000 bales less than in March. A drop inconsumption is, however, usual at this seasonof the year. There has been an increase inactivity of the cotton yarn mills in districtsNo. 1 (Boston) and No. 3 (Philadelphia). ThePhiladelphia report states that the greatestpart of the business comes from the hosieryand light-weight underwear trade. Ordersstill remain small and there is little inclinationto place them far ahead. More mills resumedoperations in April, and production variedfrom about 50 p>er cent to 75 per cent ofcapacity. The situation in district No. 6(Atlanta), so far as indicated by returns madeby 10 representative yarn mills, showed con-trary tendencies. These mills reported adecrease of 13.4 per cent during April in thequantity of their output as compared withMarch, while production was 38.8 per centbelow that of April, 1920. Shipments fell off33.5 per cent from the preceding month, whileorders on hand at the end of April were 12.3ger cent below those for the end of March.>n the other hand, 14 cloth mills in districtNo. 6 (Atlanta) had a yardage 0.8 per cent inexcess of that for March and orders on hand atthe end of the month showed an increase of 8per cent. District No. 1 (Boston) states thatbuying is so close and such little margin is leftfor securing profits that manufacturers areunwilling to accept orders far in advance, sothat in print cloths, more particularly, con-tracts of longer duration than July are theexception. In the case of ginghams andsheetings, which were early subjected to pricerevisions, sales have been well sustained, andin some instances the gingham output hasbeen taken for a four months7 period. Salesof print cloth at Fall River amounted to about550,000 pieces for the four weeks ended May14an increase of 28 per cent over the pre-ceding period of four weeks.

FINISHING OF COTTON FABRICS.

Thirty-four of the 58 members of theNational Association of Finishers of CottonFabrics reported total finished yards billedduring the month at 86,311,438 yards, ascompared with 86,732,621 yards in March.The total average percentage of capacityoperated was 66 per cent for all reportingdistricts, as compared with 67 per cent duringthe preceding month. The total gray yardageof finishing orders received amounted to92,920,824, as compared with 88,342,599 inMarch. The total average work ahead at theend of the month amounted to 10 days for allreporting districts, as compared with 8.4 daysfor the preceding month.

HOSIERY.The continuance of the strike in Philadelphia

full-fashioned hosiery mills resulted in insistentdemands upon other centers. But most mills,having booked orders for three to four monthsin advance, were unable to accept new busi-ness. As a result seamless and mock-fashionedsilk lines have been doing unusually well, andsome mills have been using night shifts. Thedemand for seamless cotton hosiery is not sogreat as for other lines; in fact in some instancesbusiness is dull. Twenty-three firms selling tothe wholesale trade, which regularly report tothe Federal Reserve Bank of Philadelphia, re-ported an increase of 13.3 per cent in the valueof the product manufactured during April ascompared with March. Orders booked duringApril declined, however, 28.3 per cent, whileunfilled orders at the end of April registereda fractional increase of 0.3 per cent. Theeight firms selling to the retail trade had in-creased the value of their output 43.3 per centduring the month. Orders booked during themonth were 0.7 per cent larger than those ofMarch, and unfilled orders on hand at the endof the month were 15.7 per cent in excess ofthose on hand at the end of March.

UNDERWEAR.

District No. 3 (Philadelphia) reports thatalthough orders for fall are being placed withthe underwear mills, they are so small that theybarely amount to 20 per cent of what is normalfor this season of the year. The cool and wetweather of early May caused an immediatefalling off in orders for current deliverygoodevidence of the uncertain state of the market." In the main, however, the market displaysconsiderable activity, and manufacturers inmany lines are unable to meet the present de-mand for short-time deliveries." The 21 firmswhich make monthly reports had an averageoutput 5.7 per cent less in April than duringthe preceding month. Orders booked duringApril fell 20.7 per cent as compared with March,and unfilled orders on hand April 30 were 5.3per cent less than at the end of the previousmonth.

The 61 mills making reports to the KnitGoods Manufacturers' Association of Americahad an output in April of 109,937 dozens ofwinter underwear, which was 35.6 per centof normal. The production of summer under-wear amounted to 292,001 dozens, or 58.3 percent of normal. Thirty-two representativemills which furnished data for both March andApril had a production of 275,382 dozens dur-ing the latter month, as compared with 285,515dozens in March. Unfilled orders on the 1st


662 FEDEKAL RESERVE BULLETIN. JUNE, 1921.

of April rose from 361,076 to 423,727 dozens.New orders received during the month of Aprilrose from 354,959 dozens to 363,543 dozens.There was a slight drop in cancellations, whichfell from 4,937 dozens to 4,279 dozens.

WOOLEN TEXTILES.

The new wool clip is now being gathered, andsales in district No. 12 (San Francisco) arereported at prices of 10 to 16 cents per poundin the grease as compared with 50 cents perpound last year. The district clip will prob-ably be somewhat below that of the precedingyear. On the basis of estimates given by rep-resentative wool growers and warehouse com-panies, it is thought that the 1921 clip will beanywhere from 75 per cent of the 1920 clip inthe States of Arizona and Washington to 100per cent in Oregon and Utah. Estimates forCalifornia and Idaho are put at 90 per cent andat 80 per cent for Nevada. Unsold holdings inall sections of the country are thought to ap-proximate 65 per cent to 75 per cent of the 1920clip. Western holdings have been moving east-ward by water in considerable volume for thepast two months. District No. 1 (Boston) reportsthat the wool market is even more of a buyers'market than it was in March, as the largestocks of raw wool have been augmented byfurther importations of wool and tops, whichhave depressed prices. The finer counts ofwoolen and worsted yarns are in demand indistrict No. 3 (Philadelphia), but no substan-tial price changes have occurred since April,although some buyers have asked concessionsfrom the contract prices of March in order tomeet current quotations. The cloth mills inall sections are exhibiting a fairly high degreeof activity, although there appear to have beenno developments of particular interest duringthe past month.

MEN'S CLOTHING.

District No. 7 (Chicago) has secured returnsfrom five representative clothing manufac-turers and nine tailors to the trade, and thesestatistics are sufficiently comprehensive to givea fairly complete picture of the clothing indus-try for the city of Chicago. Orders for fall suitsreceived by the clothing manufacturers to datewere 27.5 per cent less in terms of suit unitsthan those for the same season during theprevious year, while the number of suits madein April was 29.9 per cent less than during thesame month a year ago. The tailors to thetrade reported 42 per cent fewer orders (ex-pressed in suit units) in April than duringApril? 1920, and 23,8 per cent less than during

March of this year. Suits made in April were40.8 per cent below the numbers for the samemonth a year ago and 20.2 per cent below thetotals for March.

SILK TEXTILES.

Districts No. 2 (New York) and No. 3(Philadelphia) both mention the fact that thesil

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